NEW DELHI: In view of the long gestation period and showing negative returns, industry body ASSOCHAM has suggested that infrastructure and transportation such as road and railway sectors should continue to be exempted under Goods and Services Tax (GST) regime.

In a note submitted to the Finance Ministry, ASSOCHAM has suggested that to avoid accumulation of input tax credit with the contractors, a similar exemption should be granted in GST on direct procurements made by the contractors for use in such projects. Further withdrawal of exemption on existing projects will have a negative impact on business revenues.

The chamber says, alternative options should be provided in GST, such as Zero rating the Contract Value chain, in the event the current Exemptions are withdrawn, so as to protect the Infrastructure Projects from any additional tax burden.

The chamber spokesperson says, presently, highway toll collected from passengers and annuity amounts received from NHAI for construction and maintenance of highways is exempt from Service tax. While service by way of access to a road or a bridge on payment of toll charges has been specifically exempted in GST regime, exemption to similar income received in form of annuity from NHAI has not been provided. Essentially in case of annuity based project NHAI collects Toll charges and share Toll income in form of annuity.

Levy of GST on existing contracts with non-recoverable taxes from NHAI will have significant impact on revenue and therefore exemption should be accorded to annuity income as well.

As per contract with NHAI, concessionaire is required to a share a pre-defined percentage of income from toll collection with NHAI and there is no clarification whether sharing of such exempted income would be subject to GST. Since Toll income is exempt from GST, sharing of such income also should not attract GST.

It may be mentioned that currently the services provided to infrastructure project are exempted from service tax and wherever service tax is levied, works contract abatement is available and in VAT also abatement is available and the combined effective tax rate comes to 10 percent to 12 percent while the rate schedule released by GST council provides for 18 percent GST rate for Works contract services.

ASSOCHAM has strongly recommended that rate of GST should be retained at the current levels on the Goods and Services, on the existing projects in progress as any increase in existing tax cost will adversely impact the project financials, cash flow and margins, due to inability to pass on or recover such increased cost in the entire Contract value chain and GST rate on works contract services should be provided as 12 percent instead of 18 percent.

Similar rate structure has been provided by GST council for Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly.